Apple ‘s earnings report was bad on almost all metrics, but future guidance was downright shocking. For Q1 Apple now sees EPS of $11.75 vs. consensus of $15.53. For Q1 Apple now sees revenues of $52 billion vs. consensus of $55 billion.

In my analysis, not much has changed from a fundamental perspective since the release of bad earnings. Some may find it disconcerting that gross margins dropped to 40% vs. consensus estimate of 40.6%. In my models, I had anticipated a drop because of new products and new technologies in those products. I was especially concerned about the cost and delivery impact of the new display technology in iPhone 5. (For background please see Wafer-Thin iPhone 5 Chatter Gives Apple New Buzz As Stock Breaks Out.)

Apple CFO, Peter Oppenheimer, summed it up quite nicely, by stating that margins of new products are lower than previous versions, especially on the iPhone 5. Undoubtedly with time, Apple and Foxconn will gain experience with the new display technology and improve manufacturing efficiencies.

iPad Mini was widely expected to have much lower margins than Apple’s other products before the release of Apple earnings. There is no new adverse information in this regard in the earnings report.

iPad sales decelerated to 14 million from 17 million in the quarter before. Tim Cook explained that 14 million is better than what the company had expected due to 1.2 million sell-into-the-channels in the previous quarter. Some analysts were over optimistic in their estimates of iPad sales at 20 million.

Apple has been supply constrained on iPhone 5, but that situation will improve.

My model that determines the probability of reaching a long-term target is multi-dimensional and quite complex. One of the dimensions starts with the addressable market size; competitive landscape especially anticipated future changes, changes in technology, and progression of market share. Another dimension analyzes trends in stock ownership and anticipated changes in such trends. Yet another dimension analyzes historical patterns of not only the stock being analyzed but also of similar stocks in the past.

There is no change in the 55% probability of reaching $1000 target in the long-term despite bad earnings. According to my method, the long-term Apple story remains intact. In the very short-term risks have risen and I have recommended taking more partial profits at $610.

About Me: I am an engineer and nuclear physicist by background. I founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am the chief investment officer at The Arora Report, which publishes four newsletters to help investors profit from change. Write me: Nigam@TheAroraReport.com. Follow me here and get email notification when I publish a new article.

Full disclosure: Subscribers to The Arora Report are long Apple from $131 and have taken partial profits at $360, $525, $629, $568 and $610.